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Despite recent signs of cooling in the U.S. labor market, Friday’s employment report likely came in too strong for Federal Reserve (Fed) Chair Jay Powell. A weaker report might have allowed policymakers to at least pause on additional rate hikes when the Fed meets next month. But market expectations quickly shifted toward a 10th consecutive rate hike, with the futures markets now pricing in an approximately 70% probability of a 25-basis-point hike in May.1
The start of earnings season this week takes on added significance, with most large banks set to report for the first time following two of the largest U.S. bank failures on record.2 Investors will be focused on the level of net interest margins and depositor outflows, as banks face increased competition from higher-yielding money market funds. This week’s economic data is highlighted by Wednesday’s Consumer Price Index and Thursday’s Producer Price Index reports. Additionally, Wednesday’s release of the March Fed meeting minutes should provide a better perspective on how Fed policymakers might adjust to the recent turmoil in the banking sector.3
1MarketWatch – Traders see probability of May rate hike surge to 70% after jobs report; 4/7/2023
2Seeking Alpha – S&P 500 Earnings: The Big Banks Report Friday, April 14th, And Thoughts On A Credit Crunch; 4/10/2023
3MarketWatch – U.S. Economic Calendar; as of 4/10/2023
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